Commercial Real Estate Market Outlook

Total commercial property transaction volume for the first six months of 2017 was $211 billion, down 8% from the same period in 2016 according to Real Capital Analytics (“RCA”).  Three of the four primary property sectors showed a decrease in year-to-date sales volume, while industrial sales volume increased 10% from the same period in 2016. Still, average capitalization rates for all major property sectors, except retail, were slightly lower in comparison to end of year 2016 averages.
 
According to CBRE Econometric Advisors (“CBRE-EA”), vacancy rates for the multifamily and industrial sectors decreased during the second quarter, while vacancy for the retail and office sectors remained unchanged.
 
Multifamily – At the end of the second quarter of 2017, the national vacancy rate for multifamily properties was 4.6%, down from 4.9% in the first quarter primarily due to seasonal factors.  Vacancy was 20 basis points higher than the rate from one year ago, representing the fifth consecutive year-over-year increase. Vacancy may continue to increase near term due to new supply though most markets should stabilize in a few years as new deliveries fall.
 
Retail – The national retail vacancy rate remained unchanged during the second quarter of 2017 at 10.1%.  While the overall retail vacancy is down 300 basis points from the recession peak, continued improvement has slowed due to ongoing growth in e-commerce.
 
Office – As of June 30, 2017, the national office vacancy level was 13.0%, unchanged from the first quarter 2017.  Office vacancy has remained essentially flat for the past year following consistent decreases during the previous several years.
 
Industrial – The national industrial vacancy level fell again in the second quarter after posting the first increase in nearly seven years in the first quarter. The vacancy rate fell by 10 basis points, to 7.8% in the second quarter primarily due to fewer than projected completions.

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